ISA vs Premium Bonds

[trustysteed]

There was a thread on premium bonds recently but I can't seem to track it down so apologies for starting a new one.

I worked out that at the current huge 1.9% rate of interest, my ISA savings will earn me about £120pa, so a tenner a month.

As it's not really a great return, wouldn't it be better to put most of my savings into Premium Bonds instead? I have won £25 twice in the last year with a stake of £1000 so already that's 5% return. Even though I lose the minimal interest of the ISA, putting more in to PBs would obviously increase my chances of bigger prizes and the millionaire jackpot.

While interest rates are so low, it seems a better 'gamble' to me. What do other people think?

 

[Bonefish Blues]

http://www.telegraph.co.uk/finance/...Bonds-are-looking-a-better-bet-than-Isas.html

http://moneyfacts.co.uk/tips/savings/premium-bonds-vs-savings-accounts230311/

...but I'd also start by making sure I was getting at least 3% on an ISA, which is readily available on the high street.

HTH

 

[trustysteed]

it certainly does, thanks!

 

[sdr gb]

Have you thought about saving bonds. Minimum deposit is £5000 and there is usually a penalty if you withdraw any of it within the bond period. If you set up the bond to run longer than a year, then the annual interest rises from around 3-3.5% in the first year to 4.2-4.8% in the second.

I only know all this because the bank keep pestering me to set one up every time I go in.

 

[Paulus]

Have you thought about saving bonds. Minimum deposit is £5000 and there is usually a penalty if you withdraw any of it within the bond period. If you set up the bond to run longer than a year, then the annual interest rises from around 3-3.5% in the first year to 4.2-4.8% in the second.

I only know all this because the bank keep pestering me to set one up every time I go in.

Are these rates before or after Tax?

 

[sdr gb]

Just checked, they are before tax . The net interest rate is only around 2.7%.

 

[Paulus]

At least with ISA's they are tax free, and with premium bonds you don't pay tax on any winnings, and you can get your money back without any financial penalty.

 

[sdr gb]

At least with ISA's they are tax free, and with premium bonds you don't pay tax on any winnings, and you can get your money back without any financial penalty.

Agreed.

Now I've looked into this a bit more, savings bonds don't seem as good as the bank lets on. I'll stick with my ISA. At least if I need the money from it, I won't get a penalty charge.

 

[ohnovino]

If I was in your position I'd be more inclined to transfer my ISA. Northern Rock are currently paying 3.05% (or 3.3% if you're willing to lock your cash away for 12 months) and they accept transfers in.

http://www.moneysavingexpert.com/savings/best-cash-isa#best

 

[GilesM]

With Interest rates so low, Premium bonds are a good bet, we've had a few payouts in the lat couple of years, even got £150 one month, and there is the added possibility of a very big payout.

 

[Cheddar George]

We put a lot of our savings into premium bonds, nobody can foresee how lucky they will be, over two years it was about the same return as leaving it in an ISA. However there was always the chance of a substantial win and i was happier not having our money in the grubby hands of the bank.
Our savings are now invested in PV panels on our roof.

 

[trustysteed]

As i don't have over £10000 or so to invest to get a decent interest rate return, I might as well stick with Premium Bonds for a couple of years until interest rates get to a decent level. Of course, it means I will be paying more on the mortgage....

 

[ASC1951]

As i don't have over £10000 or so to invest to get a decent interest rate return, I might as well stick with Premium Bonds for a couple of years until interest rates get to a decent level. Of course, it means I will be paying more on the mortgage....

Have you considered an offset mortgage account? You still have your capital and effectively you are earning mortgage rate, net, on your savings - but with instant access. Mine is with C&G and a Lloyds current account, but it something many other lenders offer.

Don't overlook that with Premium Bonds you don't actually get your money back. You get it back minus inflation. With that running at over 5% at the moment you are actually losing a bundle, guaranteed.

 

[trustysteed]

I'm with Nationwide but they don't have an offset mortgage.

Chance of winning the Lotto jackpot = 14m to 1

Chance of winning the EuroM jackpot - Not sure but I buy a ticket every week

Chance of winning a prize on the Premium Bonds - 28000-1 so slightly better odds!

 

[Bonefish Blues]

Have you considered an offset mortgage account? You still have your capital and effectively you are earning mortgage rate, net, on your savings - but with instant access. Mine is with C&G and a Lloyds current account, but it something many other lenders offer.

...although the historically low mortgage interest rates make these rather less attractive than previously. Overpayment might be a better option at the moment, perhaps.